Form 485BPOS NICHOLAS II, INC

SECURITIES ACT FILE NO. 002‑85030INVESTMENT COMPANY ACT FILE NO. 811‑03851Pre‑Effective Amendment No.Post‑Effective Amendment No. 86Registrant's Telephone Number, Including Area Code (414) 272‑4650This post‑effective amendment designates a new effective date for a previously filed post‑effective amendment.

		AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 27, 2023
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933:				[X]
	[   ]
	[X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940:				[X]
		Amendment No. 86		[X]
(Check Appropriate Box or Boxes)
NICHOLAS II, INC.
(Exact Name of Registrant as Specified in Charter)
		411 East Wisconsin Avenue
		Milwaukee, WI	53202
		(Address of Principal Executive Offices)	(Zip Code)
Jennifer R. Kloehn, Senior Vice President
Nicholas II, Inc.
411 East Wisconsin Avenue, Suite 2100
Milwaukee, WI 53202
(Name and Address of Agent for Service)
WITH A COPY TO:
K. Thor Lundgren, Esq.
Jason T. Thompson, Esq.
Michael Best & Friedrich LLP
790 North Water Street, Suite 2500
Milwaukee, WI 53202
It is proposed that this filing will become effective (check appropriate box):
[	]	Immediately upon filing pursuant to paragraph (b) of Rule 485.
[ x  ]		On January 28, 2023 pursuant to paragraph (b) of Rule 485.
[	]	60 days after filing pursuant to paragraph (a)(1) of Rule 485.
[	]	On (date) pursuant to paragraph (a)(1) of Rule 485.
[	]	75 days after filing pursuant to paragraph (a)(2) of Rule 485.
[	]	On (date) pursuant to paragraph (a)(2) of Rule 485.
If appropriate, check the following box:
[	]

 

		Page
SUMMARY		1
INVESTMENT OBJECTIVE		1
FEES AND EXPENSES OF THE FUND		1
PORTFOLIO TURNOVER		1
PRINCIPAL INVESTMENT STRATEGIES		1
PRINCIPAL RISKS OF INVESTING		2
PERFORMANCE		3
INVESTMENT ADVISER		4
PORTFOLIO MANAGERS		4
PURCHASE AND SALE OF FUND SHARES		4
TAX INFORMATION		4
PAYMENTS TO BROKER-DEALERS AND OTHER FINANCIAL INTERMEDIARIES.		4
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES,
RELATED RISKS AND DISCLOSURE OF PORTFOLIO HOLDINGS		5
FINANCIAL HIGHLIGHTS		8
THE FUND’S INVESTMENT ADVISER		9
PRICING OF FUND SHARES		10
PURCHASE OF FUND SHARES		11
REDEMPTION AND EXCHANGE OF FUND SHARES		14
USE OF A PROCESSING INTERMEDIARY TO
PURCHASE AND REDEEM FUND SHARES		16
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES		17
TRANSFER OF FUND SHARES		18
DISTRIBUTION OF FUND SHARES		18
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAX STATUS		18
DIVIDEND AND DISTRIBUTION REINVESTMENT PLAN		19
SYSTEMATIC WITHDRAWAL PLAN		19
TAX DEFERRED ACCOUNTS		19
FOR MORE INFORMATION ABOUT THE FUND	Back Cover

 

     Mr. David O. Nicholas is President, a Director and Lead Portfolio Manager of the Fund and is primarily responsible for the day-to-day management of the Fund’s portfolio. Mr. Nicholas has been Portfolio Manager of the Fund since 1993. Mr. Brian J. Janowski, Senior Vice President of the Fund, has been Co-Portfolio Manager of the Fund since April 2018.

     The minimum initial investment for the Class N shares of the Fund is $500. The minimum subsequent investment is $100 except for those shareholders participating in an automatic investment plan established with the Fund, the minimum is $50.

     The Fund’s shares are redeemable. Generally, shareholders may redeem some or all of their shares without charge by the Fund on any day when the New York Stock Exchange is open by written request, by telephone request by calling 800-544-6547, by accessing your account online at www.nicholasfunds.com or by wire transfer

     Shareholders may receive distributions from the Fund of ordinary income dividends and capital gains, which may be taxable to shareholders.

     If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank or financial adviser), the Fund and its related companies may pay that intermediary for the sale of Fund shares and related services. Please bear in mind that these payments may create a conflict of interest by influencing the broker-dealer or other intermediary to recommend the Fund over another investment. Ask your intermediary or visit your intermediary’s website for more information.

     The table below describes the fees and expenses that you may pay if you buy and hold shares of the Fund. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the tables and examples below.

Shareholder Fees
(fees paid directly from your investment)		Class N
Maximum Sales Charge (Load) Imposed on Purchases		None
Maximum Deferred Sales Charge (Load)		None
Maximum Sales Charge (Load) Imposed on Reinvested Dividends		None
Wire Redemption Fee	$	15.00
Exchange Fee		None
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
Management Fees		0.75	%
Distribution (12b-1) Fees		0.25	%
Other Expenses		0.13	%
Total Annual Fund Operating Expenses		1.13	%

 

		One		Three		Five		Ten
		Year		Years		Years		Years
The Example assumes that you invest $10,000 in the Fund
for the time periods indicated and then redeem all of your
shares at the end of those periods. The Example also
assumes that your investment has a 5% return each year
and that the Fund’s operating expenses remain the same.
Although your actual costs may be higher or lower,
based on these assumptions, your costs would be:	$	115	$	359	$	622	$	1,375

 

     The Fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses in the example, affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 27.93% of the average value of the portfolio.

     To pursue the Fund’s investment objective of long-term growth, it primarily invests in common stocks of domestic corporations with small- and medium-sized market capitalizations believed to have growth potential. The Fund believes a company’s annual sales volume and market capitalization (the number of shares outstanding multiplied by the per share price) are the factors most illustrative of a company’s size. In distinguishing company size in terms of sales volume, the Fund considers a company’s sales volume relative to peer companies in the company’s industry. In terms of market capitalization, the Fund generally considers companies with market capitalizations up to $3 billion as 

“small,” between $3 billion and $25 billion as “medium,” and greater than $25 billion as “large.” To a lesser extent, the Fund may invest in companies with large market capitalizations. The Fund looks for established companies with the potential for superior growth in sales and earnings in a diversified group of industries. The Fund’s investment philosophy is basically a long-term growth philosophy, based upon the assumption that if a company achieves superior growth in sales and earnings, eventually the company’s stock will achieve superior performance. It is anticipated that a major portion of the Fund’s portfolio will be invested in common stocks of the types of companies, and in the manner, as described above. 

     As with any mutual fund, the Fund cannot guarantee that it will achieve its goals or that its performance will be positive over any period of time. The Fund’s investments change in value. Consequently, the value of your Fund shares may change. If the value of the Fund shares or the values of the Fund’s investments go down, you may lose money.

The principal risks of investing in the Fund are: 

have a material adverse effect on the Fund or its shareholders. Cybersecurity incidents could also affect issuers of securities in which the Fund invests, leading to significant loss of value. 

     Since there are risks inherent in all investments in securities, there is no assurance that the Fund’s objective will be achieved. 

     The bar chart shown below provides some indication of the risks of investing in the Fund. The chart shows the variability of the total return of the Fund’s shares for the last ten calendar years. Updated performance information for the Fund is available on our website at www.nicholasfunds.com.

     For the ten calendar year periods shown in the above bar chart, the highest quarterly return was 23.38% (for the quarter ended June 30, 2020) and the lowest quarterly return was -22.41% (for the quarter ended March 31, 2020).

     This next table shows how the average annual total returns for the one, five and ten year periods ending on December 31, 2022 (the Fund’s most recently completed calendar year), compared to the returns of broad measures of market performance and the performance average of similar mutual funds. The table also shows the average annual total returns for the Fund after taxes on distributions and after taxes on distributions and the redemption of all of your Fund shares. After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on an investor’s tax situation and may differ from those shown. After-tax returns shown are not relevant to investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) plans or individual retirement accounts.

     Mr. David O. Nicholas is President, a Director and Lead Portfolio Manager of the Fund and is primarily responsible for the day-to-day management of the Fund’s portfolio. Mr. Nicholas has been Portfolio Manager of the Fund since 1993. Mr. Ryan P. Bushman, Senior Vice President of the Fund, has been Co-Portfolio Manager of the Fund since February 2021.

     The minimum initial investment for the Class N shares of the Fund is $500. The minimum subsequent investment is $100 except for those shareholders participating in an automatic investment plan established with the Fund, the minimum is $50.

     The Fund’s shares are redeemable. Generally, shareholders may redeem some or all of their shares without charge by the Fund on any day when the New York Stock Exchange is open by written request, by telephone request by calling 800-544-6547, by accessing your account online at www.nicholasfunds.com or by wire transfer.

     Shareholders may receive distributions from the Fund of ordinary income dividends and capital gains, which may be taxable to shareholders.

     If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank or financial adviser), the Fund and its related companies may pay that intermediary for the sale of Fund shares and related services. Please bear in mind that these payments may create a conflict of interest by influencing the broker-dealer or other intermediary to recommend the Fund over another investment. Ask your intermediary or visit your intermediary’s website for more information.

     This section provides a more detailed description of each Fund’s investment objective, its principal investment strategies and related risks. The following questions and answers are designed to help you better understand each Fund’s principal investment strategies and the principal risks of investing in the Funds.

     What are the funds’ investment objectives? The investment objectives of Nicholas II, Inc. and Nicholas Limited Edition, Inc. are to increase the value of your investment over the long-term (“long-term growth”). The funds’ Board of Directors may change the funds’ investment objective without shareholder approval, and in such event, the funds will provide you with advance notice of any change in investment objective.

     How does each Fund pursue its investment objective? Nicholas II and Nicholas Limited Edition strive to meet their investment objectives by investing primarily in a diversified portfolio of equity securities of domestic companies, which they believe, have growth potential. In terms of market capitalization, Nicholas II invests primarily in mid-cap companies while Nicholas Limited Edition invests primarily in small- and mid-cap companies.

     The funds believe a company’s annual sales volume and market capitalization (the number of shares outstanding multiplied by the per share price) are the factors most illustrative of a company’s size. To determine company size in terms of sales volume, the funds compares a company’s sales volume to peer companies in the company’s industry. In terms of market capitalization, the funds use the following standard:

	Market Capitalization
Small	0 to $3 Billion
Medium	$3 Billion to $25 Billion
Large	Over $25 Billion

 

     To pursue its goal, Nicholas II also may, to a lesser extent, invest in companies with small and large capitalizations and Nicholas Limited Edition also may, to a lesser extent, invest in companies with large capitalizations. Each funds investment philosophy is basically a long-term growth philosophy, based upon the assumption that if a company achieves superior growth in sales and earnings, eventually the company’s stock will achieve superior performance.

     Each fund looks for companies with the potential for superior growth in sales and earnings. They seek companies that they believe are well positioned to take advantage of emerging, long-term social and economic trends, and have ample financial resources to sustain their growth. Each fund considers a number of factors in assessing a company’s value, including:

     There is no minimum percentage of each fund’s assets which must be invested in the securities of companies in any particular industry or group of industries. In order to be classified as a diversified investment company, each fund must meet certain criteria established by the Investment Company Act of 1940, as amended. These regulations currently state that as to 75% of a fund’s assets, at the date of investment, a fund may not (a) invest more than 5% of the value of such assets in the securities of any one issuer, or (b) invest in more than 10% of the voting securities of any one issuer.

     Each fund may hold an investment for any length of time, and may buy or sell securities whenever it observes an appropriate opportunity. The funds may reduce or sell investments in companies if there is an actual or perceived deterioration in the fundamentals of a company (including the company’s financial condition or performance, management-related problems, product-line or service-line issues, or industry problems). Nicholas II also may reduce or sell investments in companies if a company’s market capitalization grows to a point that it is clearly no longer a medium-capitalization stock, or a small- or medium-capitalization stock for Nicholas Limited Edition, or if a company’s stock price appreciates excessively in relation to its fundamental prospects. Investments in companies also may be sold if they fail to realize their growth potential or if there are other more attractive opportunities elsewhere.

     Certain circumstances also may arise in which either or both of the funds takes a temporary defensive position. In the case of a temporary defensive position, which could arise from adverse market, economic, political or other conditions, each fund may hold up to 100% of its portfolio in cash, cash equivalents or U.S. government securities. During any period in which such fund maintains such a temporary defensive position, it may not achieve its investment objective.

     Percentage limitations generally apply on the date of investment by each fund to the extent permitted by the Investment Company Act of 1940, as amended. Thus, if an investment satisfies a percentage restriction when it is made, no violation of that restriction is created by changes afterwards in the market value of the investment or the total assets of such fund.

     Market Risk. The value of a Fund’s investments, and therefore, the value of your Fund shares, may go up or down. Value changes in a Fund’s investments and consequently, your Fund shares may occur because among other things, a particular stock market fluctuates. Stock markets tend to move in cycles, with periods when stock prices generally go up, known as “bull markets,” and periods when stock prices generally go down, referred to as “bear markets.” Stock prices in general may decline over short or extended periods. Thus, there is a possibility that the value of a Fund’s investments will decrease because of declines in the stock market, regardless of the success or failure of the operations of a Fund’s portfolio companies. At other times, there are specific factors that may adversely affect the value of a particular investment of a Fund, which in turn may reduce the value of a Fund’s investments, and consequently, your Fund shares.

     Selection Risk. Each Fund also is subject to selection risk, which is the risk that the stocks the Fund buys will underperform the markets or other mutual funds with similar investment objectives and strategies.

     Portfolio-Specific Risk. From time to time, the value of an individual company may decline due to a particular set of circumstances affecting that company, its industry or certain companies within the industry, while having little or no impact on other similar companies within the industry. Because the Fund invests most of its assets in the securities of small- and mid-cap companies, the Fund may be subject to additional risks. Small-cap companies often have a limited market for their securities and limited financial resources, and are usually more affected by changes in the economy. Securities of small to medium capitalization companies also often fluctuate in price more than common stocks of larger capitalization companies. If the value of the Fund’s investments in small- to medium-cap companies decreases, the value of the Fund’s shares also may go down.

     Public Health Threats Risk. Threats to public health can have a negative impact on the global economy and financial markets, which could adversely affect the securities held by the Fund. Impacts of public health threats may last for an extended period of time and result in a substantial economic

     Cybersecurity Risk – The Fund, its service providers, and third party fund distribution platforms, and your ability to transact with the Fund, may be negatively impacted due to operational risks arising from, among other issues, human errors, systems and technology disruptions or failures, or cybersecurity incidents. Cybersecurity incidents may allow an unauthorized party to gain access to fund assets, customer data, or proprietary information, or cause the Fund or its service providers, as well as the securities trading venues and their service providers, to suffer data corruption or lose operational functionality. The occurrence of any of these issues could result in a loss of information, regulatory scrutiny, reputational damage and other consequences, any of which could have a material adverse effect on the Fund or its shareholders. Cybersecurity incidents could also affect issuers of securities in which the Fund invests, leading to significant loss of value.

     Risks Related to Certain Other Portfolio Investments and Strategies. Each Fund may use other investment strategies. These strategies and the associated non-principal risks are described in further detail in each Fund’s Statement of Additional Information (“SAI”), which is incorporated by reference herein.

     Disclosure of Portfolio Holdings. A description of each Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities is available in the Fund’s SAI. There can be no assurance that a Fund’s policies with respect to information about its portfolio securities will be effective or protect the Fund from the potential misuse of holdings by individuals or firms in possession of that information. The Fund’s complete portfolio holdings are made available to the public on a quarterly basis generally no later than 60 days after the end of each calendar quarter end. A summary of the Fund’s portfolio composition is also posted to the Fund’s website at www.nicholasfunds.com under the heading “Quarterly Factsheet” generally 10 days or more following a calendar quarter end. This summary composition may include the Fund’s top ten holdings and a breakdown by sector.

     The Funds may use many different investment strategies in seeking their investment objectives, and each has certain investment restrictions. These strategies and certain of the restrictions and policies governing each of the Fund’s investments are explained in detail in the Funds’ SAI’s, each of which is incorporated by reference herein. If you would like to learn more about how a Fund may invest and the Fund’s policies and procedures with respect to the disclosure of the Fund’s portfolio securities, you should request a copy of such Fund’s SAI. To learn how to obtain a copy, see the back cover page of this Prospectus.

     As with any mutual fund, there can be no guarantee that a Fund will achieve its goals or that you will not lose money on your investment. There is no guarantee that a Fund’s performance will be positive over any period of time. In view of the risks inherent in all investments in securities, there is no assurance that a Fund’s objective will be achieved.

     The financial highlights table is intended to help you understand Nicholas II, Inc.’s Class N financial performance for the past five fiscal periods ended September 30, 2022. Certain information reflects financial results for a single Class N share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The information has been derived from the Fund’s financial statements which have been audited by Deloitte & Touche LLP, Independent Registered Public Accounting Firm, whose report, along with the Fund’s financial statements, financial highlights, and related notes, are incorporated by reference in the SAI and included in the Fund’s Annual Report, which may be obtained without charge by calling or writing the Fund.

					Years Ended September 30,
		2022			2021			2020			2019			2018
NET ASSET VALUE,
BEGINNING OF PERIOD	$	34.97		$	27.94		$	28.91		$	29.72		$	28.29
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment income (loss)(1)		(.05	)		(.05	)		(.01	)		(.00	)(2)		.09
Net gain (loss) on securities
(realized and unrealized)		(5.71	)		8.23			2.16			2.03			4.36
Total from investment operations		(5.76	)		8.18			2.15			2.03			4.45
LESS DISTRIBUTIONS
From net investment income		—			—			(.02	)		(.08	)		—
From net capital gain		(3.39	)		(1.15	)		(3.10	)		(2.76	)		(3.02	)
Total distributions		(3.39	)		(1.15	)		(3.12	)		(2.84	)		(3.02	)
NET ASSET VALUE,
END OF PERIOD	$	25.82		$	34.97		$	27.94		$	28.91		$	29.72
TOTAL RETURN		(18.75	)%		29.85	%		7.54	%		9.55	%		16.74	%
SUPPLEMENTAL DATA:
Net assets, end of year (millions)	$	70.1		$	95.6		$	85.0		$	96.7		$	101.2
Ratio of expenses to average net assets		.89	%		.89	%		.90	%		.95	%		.93	%
Ratio of net investment income (loss)
to average net assets		(.16	)%		(.15	)%		(.05	)%		(.01	)%		.31	%
Portfolio turnover rate		15.76	%		19.57	%		22.89	%		19.75	%		26.63	%

 

     Please consider the performance information above in light of the Fund’s investment objectives and policies, and market conditions during the reported time periods. Again, you must remember that historical performance does not necessarily indicate what will happen in the future. The value of your Class N shares may go up and down.

     The financial highlights table is intended to help you understand Nicholas Limited Edition, Inc.’s Class N financial performance for the six months ended June 30, 2022 and for the past five years ended December 31, 2021. Certain information reflects financial results for a single Class N share. The total returns in the table represent the rate that an investor would have earned (or lost) on an investment in the Fund (assuming reinvestment of all dividends and distributions). The Fund’s financial performance for the six-month period ended June 30, 2022, is included in the Fund’s Semiannual Report which is incorporated by reference and may be obtained without charge by calling or writing the Fund. The information has been derived from the Fund’s financial statements which have been audited by Deloitte & Touche LLP, Independent Registered Public Accounting Firm, whose report, along with the Fund’s financial statements, financial highlights, and related notes, are incorporated by reference in the SAI and included in the Fund’s Annual Report, which may be obtained without charge by calling or writing the Fund.

		Six Months
		Ended						Years Ended December 31,
		06/30/2022
		(unaudited)			2021			2020			2019			2018			2017
NET ASSET VALUE,
BEGINNING OF PERIOD	$	30.60		$	30.44		$	26.24		$	21.86		$	24.74		$	22.44
INCOME (LOSS) FROM
INVESTMENT OPERATIONS
Net investment loss(1)		(.09	)		(.23	)		(.12	)		(.01	)		(.07	)		(.11	)
Net gain (loss) on securities
(realized and unrealized)		(6.29	)		5.95			6.01			5.93			(.30	)		4.51
Total from
investment operations		(6.38	)		5.72			5.89			5.92			(.37	)		4.40
LESS DISTRIBUTIONS
From net investment income		—			—			—			—			—			—
From net capital gain		—			(5.56	)		(1.69	)		(1.54	)		(2.51	)		(2.10	)
Total distributions		—			(5.56	)		(1.69	)		(1.54	)		(2.51	)		(2.10	)
NET ASSET VALUE,
END OF PERIOD	$	24.22		$	30.60		$	30.44		$	26.24		$	21.86		$	24.74
TOTAL RETURN.		(20.82	)%(2)		18.70	%		22.48	%		27.09	%		(1.33	)%		19.57	%
SUPPLEMENTAL DATA:
Net assets, end of period (millions)	$	20.0		$	27.7		$	28.0		$	30.0		$	28.6		$	33.0
Ratio of expenses
to average net assets		1.11	%(3)		1.07	%		1.07	%		1.11	%		1.17	%		1.19	%
Ratio of net investment loss
to average net assets		(.68	)%(3)		(.70	)%		(.48	)%		(.03	)%		(.27	)%		(.46	)%
Portfolio turnover rate		33.01	%(3)		28.32	%		28.16	%		21.56	%		23.38	%		29.67	%

 

     Please consider the performance information above in light of the Fund’s investment objectives and policies, and market conditions during the reported time periods. Again, you must remember that historical performance does not necessarily indicate what will happen in the future. The value of your Class N shares of the Fund may go up and down.

     Nicholas Company, Inc., located at 411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, is the Funds investment adviser. The Adviser furnishes each Fund with continuous investment services and is responsible for overall management of each Fund’s business affairs, subject to supervision by each Fund’s Board of Directors.

     The Adviser is the investment adviser to two other mutual funds and to numerous institutions and individuals with substantial investment portfolios. The additional mutual funds it advises are: Nicholas Equity Income Fund, Inc. and Nicholas Fund, Inc. As of December 31, 2022, the Adviser had approximately $4.9 billion in assets under management.

     The annual fee paid to the Adviser under each Investment Advisory Agreement is paid monthly and is based on the average net asset value of each Fund, as determined by valuations made at the close of each business day of the month.

Nicholas II, Inc.
	Annual Fee Calculation (Based on the
Net Asset Value of the Fund	Average Net Asset Value of the Fund)
Up to and including $50,000,000	0.75 of 1%
Over $50,000,000 and including $100,000,000	0.60 of 1%
In excess of $100,000,000	0.50 of 1%
Nicholas Limited Edition, Inc.
	Annual Fee Calculation (Based on the
Net Asset Value of the Fund	Average Net Asset Value of the Fund)
In excess of $0	0.75 of 1%

 

     For the fiscal year ended September 30, 2022, the aggregate fee paid to the Adviser for Nicholas II, Inc. was 0.52% of the Fund’s average net assets. For the fiscal year ended December 31, 2022, the aggregate fee paid to the Adviser for Nicholas Limited Edition, Inc. was 0.75% of the Fund’s average net assets.

     A discussion regarding the basis for each Board of Director’s approval of each Fund’s Investment Advisory Agreement is available in each Fund’s Semiannual or Annual Report to Shareholders for the periods ended March 31 and December 31 for Nicholas II, Inc. and Nicholas Limited Edition, Inc., respectively.

     Under separate Investment Advisory Agreements with the Funds, the Adviser, at its own expense and without reimbursement from the Funds, furnishes the Funds with office space, office facilities and executive officers and executive expenses (such as health insurance premiums for executive officers).

     Each Fund pays all of its operating expenses. Operating expenses include, but are not limited to, fees paid for attendance at Board meetings to directors who are not interested persons of the Adviser or officers or employees of each Fund, salaries of administrative and clerical personnel, association membership dues, auditing and accounting services, legal fees and expenses, printing, fees and expenses of any custodian or trustee having custody of Fund assets, postage, charges and expenses of dividend disbursing agents, registrars and stock transfer agents, including the cost of keeping all necessary shareholder records and accounts and handling any problems related thereto, and certain other costs related to the aforementioned items. Each Fund also pays the Adviser for administrative services provided to the Funds by the Adviser that a Fund is obligated to pay under its Investment Advisory Agreement, subject to certain payment guidelines adopted by unanimous resolution of the Board of Directors. A description of the payment guidelines is included in each Fund’s SAI under “The Fund’s Investment Adviser”.

     Nicholas II, Inc. Mr. David O. Nicholas is President, a Director and Lead Portfolio Manager of the Fund and is primarily responsible for the day-to-day management of the Fund’s portfolio. He has been Portfolio Manager of the Fund’s portfolio since March 1993. Mr. Nicholas is President, Chief Executive

     Nicholas Limited Edition, Inc. Mr. David O. Nicholas is President, a Director and Lead Portfolio Manager of the Fund and is primarily responsible for the day-to-day management of the Fund’s portfolio. He has been Portfolio Manager of the Fund’s portfolio since March 1993. Mr. Nicholas is President, Chief Executive Officer, Chief Investment Officer and a Director of the Adviser, and has been employed by the Adviser since 1986. Mr. Nicholas also serves as Portfolio Manager or Lead Portfolio Manager to other funds managed by the Adviser. Mr. Nicholas is a Chartered Financial Analyst.

     Each Fund’s SAI provides additional information about the respective Portfolio Managers’ compensation, other accounts managed by the Portfolio Managers, and the Portfolio Managers’ ownership of securities in the respective Funds.

     David O. Nicholas is a controlling person of the Adviser through his ownership of 60% of the outstanding voting securities of the Adviser.

     Each Fund’s price per share is the net asset value (“NAV”) of the Fund. The NAV of each Fund is determined by dividing the total value in U.S. dollars of the Fund’s total net assets by the total number of shares outstanding at that time. Net assets of each Fund are determined by deducting the liabilities of the Fund from the total assets of the Fund. The securities held by each Fund are valued at market value or, if a market quotation is not readily available, their fair value is determined in good faith using procedures adopted by such Fund’s Board of Directors. As an example, a market quotation may not be readily available if the trading of a security is halted by its primary exchange and does not resume before the markets close or the primary exchange experiences technical difficulties. If a security is valued using fair value pricing, a Fund’s value for that security is likely to be different than the last quoted market value. The NAV is determined as of the close of regular trading on the New York Stock Exchange (“NYSE”) (usually 4:00 p.m., Eastern Time) on each day the NYSE is open. Therefore, shares of the Funds are not priced on days when the NYSE is closed, which generally is on weekends and national holidays in the U.S.A. For a list of holidays observed by the NYSE, please contact the Funds or see a Fund’s SAI.

     Shareholder purchase, redemption and exchange orders are processed using the NAV next calculated after receipt of such request in proper order by a Fund (or an Authorized Agent of the Funds). In order to receive a day’s price, your request must be received in proper order by the close of regular trading on the NYSE. If you request to purchase, redeem or exchange your shares after the NYSE has closed or on a day the NYSE is closed, the NAV will be determined as of the close of the next day the NYSE is open for trading.

		TO OPEN AN ACCOUNT		TO ADD TO AN ACCOUNT
MINIMUM INVESTMENT		$500		$100
				$50 via the Automatic
				Investment Plan
BY MAIL		Complete and sign the		Send your check along with
Regular Mail:		Account Application.		the Invest by Mail form
Nicholas Funds				detached from your
c/o U.S. Bancorp Global Fund Services		Make your check payable		confirmation statement.
P.O. Box 701		to Nicholas Funds
Milwaukee, Wisconsin 53201‑0701				Send your check payable to
				Nicholas Funds with your
Overnight Mail:				account number in the memo
Nicholas Funds				field.
c/o U.S. Bancorp Global Fund Services
Third Floor
615 East Michigan Street
Milwaukee, Wisconsin 53202
BY INTERNET –		Go to		Current shareholders can visit
www.nicholasfunds.com		www.nicholasfunds.com and		www.nicholasfunds.com and
		click on “Online Account		click on “Online Account
		Access” located on the home		Access” and then “Login
		page. Next, click on “New		Using User ID” to make
		Account Setup”. To open		subsequent investments
		an account you will need		directly from your
		to provide your social		pre-established bank account
		security number, your		or to purchase or exchange
		bank’s routing information		shares from another fund in
		(also known as an ABA		the Nicholas complex with
		number), your bank account		the same registration.
		number, your mailing
		address, your residential
		address and your email
		address.
BY TELEPHONE – 800-544-6547		You may not make an		Call the Fund’s transfer agent,
414-276-0535		initial purchase of Fund		U.S. Bancorp Fund Services,
The Funds must have bank		shares via the telephone.		LLC, during business hours
instructions on file to purchase				(8:00 A.M. to 7:00 P.M.
Fund shares this way.				Central Time).
Telephone calls will be recorded.

 

	TO OPEN AN ACCOUNT	TO ADD TO AN ACCOUNT
BY WIRE	Complete and send in an	Call U.S. Bancorp to notify
U.S. Bank, N.A.	Account Application. The	800‑544‑6547 or
ABA 075000022	completed application must	414‑276‑0535.
U.S. Bancorp Fund Services, LLC	be received in advance of
Account 112‑952‑137	the wire.
[Fund Name]
(shareholder account number)	Call U.S. Bancorp to notify
(shareholder registration)	800‑544‑6547 or
	414-276-0535.
AUTOMATIC	Not applicable.	Contact the Funds for
INVESTMENT PLAN		additional information.
U.S. Bancorp
800‑544‑6547 or 414‑276‑0535

 

     Your application to purchase a Fund’s shares must be in proper order to be accepted, may only be accepted by the Funds or an Authorized Agent of the Funds, and is not binding until accepted. Once your purchase order has been accepted, you may not cancel or revoke it. All purchase orders must be accompanied by payment in U.S. funds. Purchase of shares will be made in full and fractional shares computed to three decimal places.

     Your check should be drawn on a U.S. bank, savings and loan or credit union. Checks are accepted subject to collection at full face value in U.S. funds. To prevent check fraud, third-party checks, Treasury checks, credit card checks, traveler’s checks, starter checks and money orders will not be accepted. The Funds are unable to accept post-dated checks or any conditional order or payment. The transfer agent will charge a $25 fee against your account, in addition to any loss sustained by a Fund, if any payment check is returned to the transfer agent or your Automated Clearing House (“ACH”) transfer does not clear. The Funds will not accept purchase or exchange orders under circumstances or in amounts considered disadvantageous for shareholders.

     Under the Automatic Investment Plan, you may purchase Fund shares automatically at regular intervals by authorizing the Fund to withdraw $50 or more from your personal bank account. If your bank rejects your payment, the Fund’s transfer agent will charge a $25 fee to your account. To participate in this plan, you must complete the “Automatic Investment Plan” section of the application and attach a voided check or contact the Fund at 800-544-6547 for additional information. Your financial institution must be a member of the Automated Clearing House (ACH) network. Any request to change or terminate your Automatic Investment Plan should be submitted to the transfer agent 5 days prior to the effective date.

     In compliance with the USA Patriot Act, please note that the transfer agent, U.S. Bancorp Fund Services, LLC (“U.S. Bancorp”), will verify certain information on your Account Application as part of the Fund’s Anti-Money Laundering Program. As requested on the Account Application, you must supply your full name, date of birth, social security number and permanent street address. Mailing addresses containing a P.O. Box alone will not be accepted as a permanent street address. Please contact U.S. Bancorp (800-544-6547 or 414-276-0535) if you need additional assistance when completing your application. If you are opening the account in the name of a legal entity (e.g., partnership, limited liability company, business trust, corporation, etc.), you must also supply the identity of the beneficial owners. Shares of the Funds have not been registered for sale outside of the United States. The Funds generally do not sell shares to investors residing outside of the United States, even if they are U.S. citizens or lawful permanent residents, except to investors with U.S. military APO or FPO addresses.

     If we do not have a reasonable belief of the identity of a customer, the account will be rejected or the customer will not be allowed to perform a transaction on the account until such information is received. In the rare event that the Fund’s transfer agent is unable to verify your identity, the Fund reserves the right to redeem your account at the current day’s net asset value.

     You should be aware that deposit of purchase and exchange requests in the mail or with other independent delivery services does not constitute receipt by U.S. Bancorp or the Funds.

     Only bank accounts held at domestic financial institutions that are “ACH” members may be used for telephone or internet transactions. The ability to perform internet and telephone transactions will become effective approximately 7 business days after an application including bank instructions or a change of account options request to add or change bank instructions is received.

     During periods of substantial economic or market changes or due to technical difficulties, you may have difficulty making internet or telephone purchases and exchanges. If you are unable to perform your transaction via the internet or by telephone, you may purchase and exchange Fund shares by delivering the request in person or by mail.

     Wired funds must be received prior to 4:00 p.m. Eastern Time to be eligible for same day pricing. The Funds and their transfer agent are not responsible for the consequences of delays resulting from the banking or Federal Reserve wire system, or from incomplete wiring instructions. If you are making an initial investment by wire, you must first complete and return to the appropriate address an Account Application.

     Due to fixed expenses incurred by the Funds in maintaining individual accounts, the Funds reserve the right to redeem accounts that fall below the minimum investment required due to shareholder redemption (but not solely due to a decrease in net asset value of a Fund). In order to exercise this right, a Fund will give advance written notice of at least 30 days to the accounts below such minimum. The Fund’s transfer agent may charge an activity fee for certain requests, including but not limited to, requesting stop payment on a redemption check and overnight delivery of redemption proceeds. Your mutual fund account may be transferred to your state of residence if no activity occurs within your account during the inactivity period specified in your state’s abandoned property laws.

     It is important that the Funds maintain a correct address for each investor. An incorrect address may cause an investor’s account statements and other mailings to be returned to the Funds. Based upon statutory requirements for returned mail, the Funds will attempt to locate the investor or rightful owner of the account. If the Funds are unable to locate the investor, then they will determine whether the investor’s account can legally be considered abandoned. Your mutual fund account may be transferred to the state government of your state of residence if no activity occurs during the “inactivity period” specified in your state’s abandoned property laws. The Funds are legally obligated to escheat (or transfer) abandoned property to the appropriate state’s unclaimed property administrator in accordance with statutory requirements. The investor’s last known address of record determines which state has jurisdiction. Please proactively contact the Fund at 1-800-544-6547 at least annually to ensure your account remains in active status. Investors who reside in the state of Texas may designate a representative to receive legislatively required unclaimed property due diligence notifications. Please contact the transfer agent to complete a Texas Designation of Representative form.

     Share ownership is electronically recorded. Accordingly, the Funds will not issue certificates representing Fund shares. The Fund’s transfer agent will credit the shareholder’s account with the number of shares purchased. Written confirmations are issued for all purchases of Fund shares.

BY MAIL	Written redemption and exchange requests must include the
Regular Mail:	name of the Fund, the account number(s), the amount of
Nicholas Funds	money or number of shares being redeemed or exchanged,
c/o U.S. Bancorp Global Fund Services	the name(s) on the account(s) and the signature(s) of each
P.O. Box 701	registered account holder. You may exchange your Class N
Milwaukee, Wisconsin 53201‑0701	shares in the Fund for Class N shares of any Nicholas
	Fund. If an account registration is individual, joint tenants,
Overnight Mail:	sole proprietorship, custodial (Uniform Transfer to Minors
Nicholas Funds	Act), or general partners, the written request must be signed
c/o U.S. Bancorp Global Fund Services	exactly as the account is registered. If the account is owned
Third Floor	jointly, all owners must sign.
615 East Michigan Street
Milwaukee, Wisconsin 53202

 

BY INTERNET –	Visit www.nicholasfunds.com and click on “Account
www.nicholasfunds.com	Access” to redeem or exchange shares to another fund in
The Funds must have bank	the Nicholas complex.
instructions on file to redeem
Fund shares this way.
BY TELEPHONE – 800‑544‑6547	Call the Funds’ transfer agent, U.S. Bancorp Fund Services,
414-276-0535	LLC, during business hours (8:00 A.M. to 7:00 P.M.
Telephone calls will be recorded.	Central Time).
BY WIRE – 800‑544‑6547	Call U.S. Bancorp to request wire redemptions.
414-276-0535
SYSTEMATIC	Contact the Funds for additional information.
WITHDRAWAL PLAN
U.S. Bancorp
800‑544‑6547 or 414‑276‑0535

 

     All redemptions and exchanges will be processed immediately upon receipt and written confirmations will be issued for all redemptions and exchanges of Fund shares. Once your redemption or exchange order has been accepted, you may not cancel or revoke it.

     The Funds ordinarily pay for redeemed shares within seven days after receipt of a request in proper order, except as provided by the rules of the Securities and Exchange Commission. Redemption payments are normally funded by cash held by the Fund, but in periods of unusually high redemptions, the Fund may be required to sell securities. Although not anticipated, it is possible that conditions may arise in the future which would, in the opinion of the Fund's Adviser or Board of Directors, make it undesirable for the Fund to pay for all redemptions in cash. In such cases, the Board may authorize payment to be made in portfolio securities or other property of the Fund. Redemption proceeds to be wired normally will be wired on the next business day after a NAV is determined. The Funds reserve the right to hold payment up to 15 days or until notified that investments made by check or electronic funds transfer through the ACH network have been collected, at which time payment will be made. This delay will not apply if you purchased your shares via wire payment.

     You may instruct U.S. Bancorp to mail the proceeds to the address of record or to directly mail the proceeds to a pre-authorized bank account. Proceeds also may be wired to a pre-authorized account at a commercial bank in the United States. The transfer agent charges a $15 wire redemption fee. In addition, proceeds also may be electronically transferred through the ACH to a pre-authorized account at no cost. Please contact the Funds for the appropriate form if you are interested in setting your account up with wiring instructions or authorizing electronic transfers.

     You can redeem and exchange your shares by internet or telephone unless you decline this option in writing.

     During periods of substantial economic or market changes or due to technical difficulties, you may have difficulty making internet or telephone redemptions and exchanges. If you are unable to perform your transactions via the internet or by telephone, you may redeem or exchange your shares by delivering the request in person or by mail.

     Procedures for redeeming and exchanging Fund shares by internet or telephone may be modified or terminated at any time by a Fund or its transfer agent. The exchange privilege may be terminated or modified only upon 60 days advance notice to shareholders. Neither the Funds nor their transfer agent will be liable for following instructions communicated by the internet or telephone which they reasonably believe to be genuine. The Funds and their transfer agent will employ reasonable procedures to confirm that instructions received by telephone are genuine, and if they do not, they may be liable for losses due to unauthorized or fraudulent instructions. If an account has more than one owner or authorized person, the Funds will accept telephone instructions from any one owner or authorized person. Once you place a telephone transaction request, it cannot be canceled or modified after the close of regular trading on the NYSE (generally, 4:00 p.m., Eastern Time).

     The Funds will return and not process requests that contain restrictions as to the time or date redemptions and exchanges are to be effected.

     The Funds may require additional supporting documents for redemptions and exchanges made by corporations, executors, administrators, trustees and guardians. Specifically, if the account is registered in the name of a corporation or association, the request must be accompanied by a corporate resolution signed by the authorized person(s). A redemption or exchange request for accounts registered in the name of a legal trust must have a copy of the title and signature page of the trust agreement on file or must be accompanied by the trust agreement and signed by the trustee(s).

     For federal income tax purposes, redemptions and exchanges generally are treated as a sale of the shares being redeemed or exchanged. You may recognize a capital gain or loss equal to the difference between the redemption or exchange price and your cost basis for the shares being redeemed or exchanged. An exchange between the funds involving master retirement plans and IRA accounts generally is not a taxable transaction for federal tax purposes. See “Dividends, Distributions and Federal Tax Status” for further information. If you have an individual retirement account (“IRA”) or other retirement plan, you must indicate on your redemption requests whether or not to withhold federal income tax. Unless a redemption request specifies not to have federal income tax withheld, the transaction will be subject to withholding. Shares held in an IRA or other retirement account may be redeemed by telephone. Investors will be asked whether or not to withhold taxes from any distribution. Please consult your current IRA Disclosure Statement for any applicable fees. IRA redemptions may not be conducted using the internet.

     Nicholas Company, Inc. is the adviser to the portfolios of the Class N shares discussed within this Prospectus with which you may conduct exchange transactions, and which have investment objectives as discussed in the section “More on the Fund’s Investment Objectives, Principal Investment Strategies and Risks.” Nicholas Company, Inc. also is the adviser to the portfolios of the Class I shares of the Funds having the same investment objectives as discussed within this Prospectus as well as Nicholas Equity Income Fund, Inc. and Nicholas Fund, Inc. each of which have investment objectives as discussed in separate prospectuses. You may exchange your shares of the Fund for shares of these other available Nicholas funds or the Fidelity Investments Money Market Funds: Government Portfolio. The Fidelity Investments Money Market Funds: Government Portfolio is a money market mutual fund available for you to respond to changes in your goals or market conditions and is not affiliated with the Fund or the Adviser.

     If you choose to exercise the exchange privilege, your shares will be exchanged at their next determined NAV. Exchanges can only occur between identically registered accounts. Minimum investment requirements must be met.

     If you are interested in exercising the exchange privilege, you must obtain the appropriate prospectus from Nicholas Company, Inc.

     Signature guarantees will generally be accepted from domestic banks, brokers, dealers, credit unions, national securities exchanges, registered securities associations, clearing agencies and savings associations, as well as from participants in the New York Stock Exchange Medallion Signature Program and the Securities Transfer Agents Medallion Program (“STAMP”). A notary public is not an acceptable signature guarantor.

     A signature guarantee, from either a Medallion program member or a non-Medallion program member, is required to redeem shares in the following situations:

     The Fund may waive any of the above requirements in certain instances. In addition to the situations described above, the Fund(s) and /or the Transfer Agent reserve the right to require a signature guarantee in other instances based on the circumstances relative to the particular situation.

20

     Non-financial transactions, including establishing or modifying certain services on an account, may require a signature guarantee, signature verification from a Signature Validation Program member, or other acceptable form of authentication from a financial institution source.

     If you are uncertain about what documents or instructions are necessary in order to redeem and exchange shares, please write or call U.S. Bancorp (800-544-6547 or 414-276-0535) prior to submitting a request. A redemption or exchange request will not become effective until all documents are received in proper order.

     You can purchase and redeem shares of any Fund through certain broker-dealers, financial institutions and other service providers (“Processing Intermediaries”). Certain Processing Intermediaries are, in turn, authorized to designate other intermediaries to accept purchase and redemption orders on the Funds’ behalf. If you invest in a Fund through a Processing Intermediary, the Processing Intermediary rather than you may be the shareholder of record. Processing Intermediaries may use procedures and impose restrictions in addition to or different from those applicable to shareholders who invest in a Fund directly. You should read the program materials provided by the Processing Intermediary in conjunction with this Prospectus before you invest in a Fund in this way.

     Processing Intermediaries may charge fees or other charges for the services they provide to their customers. Such charges vary among Processing Intermediaries, but in all cases will be retained by the Processing Intermediary and not remitted to the Funds or the Adviser.

     A Fund also may enter into an arrangement with some Processing Intermediaries which authorizes them to process purchase and redemption orders on behalf of such Fund on an expedited basis (an “Authorized Agent”). Receipt of a purchase or redemption order by an Authorized Agent will be deemed to be received by the Fund for purposes of determining the NAV of Fund shares to be purchased or redeemed. If you place a purchase order through an Authorized Agent, you will pay the Fund’s NAV next computed after the receipt by the Authorized Agent of such purchase order, plus any applicable transaction charges imposed by the Authorized Agent. For redemption orders placed through an Authorized Agent, you will receive redemption proceeds which reflect the NAV next computed after the receipt by the Authorized Agent of the redemption order, less any redemption fees imposed by the Authorized Agent.

     Of course, you do not have to use the services of a Processing Intermediary, or pay the fees that may be charged for such services. You can invest directly with a Fund without a sales charge. If you hold Fund shares through a Processing Intermediary, you must redeem your shares through such Processing Intermediary. You should contact the Processing Intermediary for instructions on how to redeem. If you originally invested directly with a Fund, you can redeem Fund shares directly through the Fund without a redemption charge.

     Frequent purchases and sales of fund shares may affect shareholders in various ways. Depending on various factors, including but not limited to, the size of the Funds, the amount of assets the portfolio manager typically maintains in cash or cash equivalents, and the dollar amount, number and frequency of trades, short-term or excessive trading may disrupt the efficient management of a Fund’s portfolio, may impact Fund performance and may increase brokerage, administrative and other expenses. The Funds reserve the right to reject any purchase request, including exchange requests from other Funds, if the Fund regards the request as disruptive or if the Fund deems the request to have the potential to be disruptive. However, a Fund cannot ensure that its efforts will eliminate all risks of market timing.

     Certain types of funds are particularly susceptible to market timing activity, including international, small-cap and high yield bond funds. This is due to the relative illiquidity and volatility of their holdings. Nicholas II, Inc. and Nicholas Limited Edition, Inc. will invest in the securities of entities with small capitalizations. To the extent that such Funds invest in small capitalization entities in amounts that are material, the Funds may be at greater risk for attempted market timing activity than funds that do not invest in the securities of corporations with small capitalizations.

     Each Fund discourages disruptive trading in Fund shares for abusive purposes in accordance with the policies and procedures adopted by its Board of Directors, which are reasonably designed to detect and discourage disruptive trading. These policies and procedures apply to any account, whether an individual account or an account referred to as an “omnibus account” where a financial intermediary holds Fund shares for a number of its customers in one account. Because there is currently no generally applied standard in the marketplace as to what level of trading activity is abusive, each Fund’s Board of Directors elected not to adopt rigid rules specifying what activity is abusive or how suspected abusive activity will be addressed. In adopting a Fund’s policies and procedures, each Fund’s Board of Directors determined that it would be in the best interests of shareholders to provide flexibility in dealing with such activities.

     Under each Fund’s policies and procedures, each Fund currently uses various methods to deter disruptive activity in both individual and omnibus accounts, including but not limited to, selective monitoring of trading activity and undertaking preventive action designed to discourage and preclude disruptive traders from entering the Funds. We may consider trading in a Fund’s shares to be disruptive if we detect one or more of the following in an account:

     Each Fund reserves the right to take responsive action to trading activity deemed disruptive by such Fund’s compliance committee, even though such trades may not fall into one or more of these categories.

     In connection with our review of suspected disruptive trading, we may, at our option, contact the individual or entity or the financial intermediary believed to be engaged in or to have facilitated such trading. If we reasonably believe that the trading was disruptive, we will ask that investor or financial intermediary to refrain from such activity in the future. In addition, the investor or financial intermediary may be restricted from future purchases into one or more of the Funds and may also be restricted from future purchases of shares offered by any of the funds in the Nicholas fund complex.

     In determining what action to take with respect to suspected disruptive trading activity, a Fund will act in a manner that is consistent with the best interests of such Fund’s shareholders by making independent assessments of instances or patterns of potentially improper conduct in a manner consistent with the policies and procedures approved by the Fund’s Board of Directors.

     While no Fund accommodates market timing activities engaged in for abusive purposes, the methods used by a Fund to deter and detect market timing activities involve judgments that are inherently subjective and our response to potentially disruptive trading activity may not be uniform. This means that a Fund may not take remedial action against investors detected engaging in a disruptive trade for reasons believed by the Funds to be legitimate and non-abusive. Examples of legitimate trading activities include, but may not be limited to, asset allocation, dollar cost averaging, emergency liquidations, estate planning measures or similar activities that may nonetheless arguably result in disruptive trading of Fund shares.

     There is a risk that a Fund’s policies and procedures will prove ineffective in whole or in part to detect or prevent abusive market timing activities. For example, it may be difficult for a Fund to identify such activities engaged in by investors through the use of omnibus accounts administered by financial intermediaries who transmit purchase, exchange, or redemption orders to a Fund on behalf of their customers who are the beneficial owners. Short-term trading by these investors is likely to go undetected by a Fund.

     If a Fund is unable to detect and deter trading abuses, its performance, and its long-term shareholders, may be harmed. In addition, because no Fund has adopted specific limitations or restrictions on the trading of its shares, shareholders may be harmed by the extra costs and portfolio management inefficiencies that result from excessive or disruptive trading of Fund shares, even when the trading is not for abusive purposes.

22

     You may transfer a Fund’s shares in instances such as the death of a shareholder, change of account registration, change of account ownership and in cases where shares of a Fund are transferred as a gift. You can obtain documents and instructions necessary to transfer a Fund’s shares by writing or calling U.S. Bancorp (800-544-6547 or 414-276-0535) prior to submitting any transfer requests.

     Quasar Distributors, LLC (the “Distributor”), 111 East Kilbourn Avenue, Suite 2200, Milwaukee, Wisconsin, 53202, serves as the distributor and principal underwriter of the Funds’ shares. The Distributor is a registered broker-dealer and member of the Financial Industry Regulatory Authority, Inc. (“FINRA”).

     Each Fund has adopted on behalf of its Class N shares a distribution plan (the “Distribution Plan”) pursuant to Rule 12b-1 under the Investment Company Act of 1940, which allows Class N shares to pay distribution fees for the sale and distribution of its shares. Under the Distribution Plan, Class N shares may pay as compensation up to an annual rate of 0.25% of the average daily net asset value of Class N shares to the Adviser or other qualified recipient under the Distribution Plan. As these fees are paid out of a Fund’s assets on an on-going basis, over time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.

     Each Fund has adopted on behalf of its Class N shares a shareholder servicing plan (the “Servicing Plan”) under which the Adviser may perform, or arrange for others to perform, certain shareholder functions. For these shareholder services, the Adviser and/or shareholder servicing agents are entitled to receive an annual shareholder servicing fee up to an amount of 0.10% of the average daily net assets attributable to the Class N shares of a Fund. The Adviser may pay additional compensation from time to time, out of its assets and not as an additional charge to the Funds, to selected shareholder servicing agents and other persons in connection with providing services to the holders of Class N shares.

     Each Fund intends to qualify annually as a “regulated investment company” under the Internal Revenue Code of 1986 and intends to take all other action required to ensure that little or no federal income or excise taxes will be payable by such Fund. As a result, each Fund generally will seek to distribute to its shareholders substantially all of its net investment income and net realized capital gain.

     For federal income tax purposes, dividends and distributions by a Fund, whether received in cash or invested in additional shares of a Fund, will be taxable to the Fund’s shareholders, except those shareholders that are not subject to tax on their income. Net realized long-term gains are paid to shareholders as capital gain distributions. Income distributed from a Fund’s net investment income and net realized short-term gains are paid to shareholders as ordinary income dividends. Distributions generally will be made annually in December. Distributions may be taxable at different rates depending on the length of time a Fund holds a security. Dividends, if any, of Nicholas II, Inc. and Nicholas Limited Edition, Inc. are paid to shareholders on or about the end of December. Each Fund will provide information to its shareholders concerning the character and federal tax treatment of all dividends and distributions. If you elect to receive distributions and/or capital gains paid in cash, and the U.S. Postal Service cannot deliver the check, or if a check remains outstanding for six months, the Funds reserve the right to reinvest the distribution check in your account, at the Fund’s current net asset value, and to reinvest all subsequent distributions.

     At the time of purchase of Fund shares, a Fund may have undistributed income or capital gains included in the computation of the NAV. Therefore, a dividend or capital gain distribution received

     Under federal law, some shareholders may be subject to “backup withholding” on reportable dividends, capital gain distributions (if any) and redemption payments. Generally, shareholders subject to backup withholding will be those (i) who, to the Fund’s knowledge, have furnished an incorrect tax identification number, or (ii) who have failed to declare or underreported certain income on their federal returns. When establishing an account, you must certify under penalties of perjury that the taxpayer identification number you give to the Funds is correct and that you are not subject to backup withholding.

     The foregoing tax discussion relates to federal income taxes only and is not intended to be a complete discussion of all federal tax consequences. You should consult with a tax adviser concerning the federal, state and local tax aspects of an investment in the Funds.

     Unless you elect to accept cash in lieu of shares, all dividends and capital gain distributions are automatically reinvested in additional shares of the Fund through the Dividend and Distribution Reinvestment Plan (the “Reinvestment Plan”). You may elect to accept cash on an application to purchase shares, by telephone or by separate written notification. All reinvestments are at the NAV in effect on the dividend or distribution date and are credited to the shareholder’s account. U.S. Bancorp will notify you of the number of shares purchased and the price following each reinvestment period.

     You may withdraw from or thereafter elect to participate in the Reinvestment Plan at any time by giving written or telephonic notice to U.S. Bancorp. The Funds’ transfer agent must receive an election prior to the dividend record date of any particular distribution for the election to be effective for that distribution. If an election to withdraw from or participate in the Reinvestment Plan is received between a dividend record date and payment date, it shall become effective on the day following the payment date. The Funds may modify or terminate the Reinvestment Plan at any time on 30 days written notice to participants.

     If you own $10,000 or more of a Fund’s shares at the current market value, you may open a Systematic Withdrawal Plan (the “Plan”) and receive monthly, quarterly, semiannual or annual payments for any designated amount. You may elect to have a check sent to you at your address of record, or proceeds can be sent directly to your predesignated bank account via electronic funds transfer through the Automated Clearing House network. When you participate in the Plan all income and capital gain dividends should be reinvested in shares of the Fund. U.S. Bancorp reinvests all income and capital gain dividends in shares of a Fund. You may add shares to, withdraw shares from, or terminate the Plan, at any time by contacting the Fund’s transfer agent at least five days prior to the next scheduled withdrawal. Each withdrawal may be a taxable event to you. Liquidation of shares in excess of distributions may deplete or possibly use up the initial investment, particularly in the event of a market decline, and withdrawals cannot be considered a yield or income on the investment. In addition to termination of the Plan by a Fund or its shareholders, the Fund’s transfer agent may terminate the Plan upon written notice mailed to the shareholders. Please contact Nicholas Company, Inc. for copies of the Plan documents.

     If you are eligible, you may set up one or more tax deferred accounts. A contribution to certain of these plans also may be tax deductible. The Funds offer the following tax deferred accounts: traditional, Roth, SEP, and SIMPLE IRAs; a Master Retirement Plan for self-employed individuals and partnerships; and Coverdell Savings Accounts for qualified education expenses for children under 18. A description of applicable service fees and application forms are available upon request from the Funds. These documents also contain a Disclosure Statement, which the IRS requires to be furnished to individuals who are considering adopting these plans. It is important that you obtain up-to-date information from the Funds before opening a tax deferred account. Investors should consult with their tax adviser or legal counsel before investing in a tax deferred account.

Investment Adviser

NICHOLAS COMPANY, INC.
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547

Distributor

QUASAR DISTRIBUTORS, LLC
Milwaukee, Wisconsin

Accountant
Dividend Disbursing Agent
Transfer Agent

U.S. BANCORP FUND SERVICES, LLC
Milwaukee, Wisconsin
414-276-0535 or 800-544-6547

Custodian

U.S. BANK N.A.
Milwaukee, Wisconsin

Independent Registered Public Accounting Firm

DELOITTE & TOUCHE LLP
Milwaukee, Wisconsin

Counsel

MICHAEL BEST & FRIEDRICH LLP
Milwaukee, Wisconsin

FOR MORE INFORMATION ABOUT THE FUNDS:

     The Funds’ Statements of Additional Information (“SAIs”), each dated January 28, 2023, contain more detailed information on all aspects of each Fund, and each is incorporated by reference in this Prospectus. Additional information about each Fund also is available in its Annual and Semiannual Report to Shareholders. Each Fund’s Annual Report discusses the market conditions and investment strategies that significantly affected such Fund’s performance during its last fiscal year.

     To request a free copy of the current Annual/Semiannual Report to Shareholders or SAI for a Fund or other information about the Fund’s, or to make shareholder inquiries, please write or call: Nicholas Funds, 411 East Wisconsin Avenue, Milwaukee, Wisconsin 53202, 800-544-6547 (toll-free). Along with the Funds’ Annual/Semiannual Reports and SAIs, additional information about each Fund also can be obtained from the Fund’s Internet website at www.nicholasfunds.com.

     Reports and other information about the Fund also are available on the SEC’s Internet website at www.sec.gov. For a duplicating fee, copies of such information may be obtained by electronic request at the following e-mail address: [email protected].

     For the most current price and return information for the Fund’s Class N shares, you may call the Funds at 800-544-6547 (toll-free) or 414-276-0535 or check the Fund’s website at www.nicholasfunds.com. You also can find the most current price of each Fund’s Class N shares in the business section of your newspaper in the mutual fund section under the heading “Nicholas Group” –“NchII” or “NchLt”. If you prefer to obtain this information from an on-line computer service, you can do so by using the ticker symbols or CUSIP numbers as follows:

	Ticker	CUSIP
Nicholas II, Inc.	NNTWX	653740209
Nicholas Limited Edition, Inc.	NNLEX	653738203

 

Investment Company Act File Nos.
Nicholas II, Inc.	811‑03851
Nicholas Limited Edition, Inc.	811‑04993

 

     This Statement of Additional Information is not a prospectus and contains information in addition to and more detailed than that set forth in the current Class I shares Prospectus or Class N shares Prospectus of Nicholas II, Inc. (the "Fund"), each dated January 28, 2022. It is intended to provide you with additional information regarding the activities and operations of the Fund, and should be read in conjunction with the Fund's current Prospectuses, as they may be revised from time to time, and the Fund's Annual Report for the fiscal year ended September 30, 2022, which are incorporated herein by reference. The Fund's Prospectuses provide the basic information you should know before investing in the Fund.

     To obtain a free copy of the Fund's Prospectuses and Annual or Semiannual Report, please write or call the Fund at the address and telephone number set forth above.

TABLE OF CONTENTS

	Page
INTRODUCTION	1
INVESTMENT OBJECTIVES AND INVESTMENT STRATEGIES	1
INVESTMENT RESTRICTIONS	7
THE FUND'S INVESTMENT ADVISER AND ACCOUNTANT	10
MANAGEMENT ‑ DIRECTORS, EXECUTIVE OFFICERS AND PORTFOLIO MANAGERS OF THE FUND	12
PROXY VOTING GUIDELINES	17
PRINCIPAL SHAREHOLDERS	18
PORTFOLIO MANAGERS OF THE FUND	19
DISTRIBUTION OF FUND SHARES	20
PURCHASE, REDEMPTION AND PRICING OF FUND SHARES	22
ANTI‑MONEY LAUNDERING PROGRAM	23
DIVIDENDS, DISTRIBUTIONS AND FEDERAL TAX STATUS	23
PORTFOLIO TRANSACTIONS AND BROKERAGE	24
PERFORMANCE DATA	27
CAPITAL STRUCTURE	28
STOCK CERTIFICATES	28
ANNUAL MEETING	29
SHAREHOLDER REPORTS	29
CUSTODIAN AND TRANSFER AGENT	29
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM AND LEGAL COUNSEL	29
FINANCIAL INFORMATION	29

 

     Nicholas II, Inc. (the "Fund") was incorporated under the laws of Maryland on June 28, 1983. The Fund is an open-end, diversified management investment company registered under the Investment Company Act of 1940, as amended (the "1940 Act"). This type of investment company is commonly called a mutual fund. As an open-end investment company, it obtains its assets by continuously selling shares of its common stock, $0.01 par value, to the public. Proceeds from such sales are invested by the Fund in securities of other companies. In this manner, the resources of many investors are combined and each individual investor has an interest in every one of the securities owned by the Fund. The Fund provides each individual investor with diversification by investing in the securities of many different companies in a variety of industries and furnishes experienced management to select and watch over its investments. As an open-end investment company, the Fund will redeem any of its outstanding shares on demand of the owner at their net asset value next determined following receipt of the redemption request. The investment adviser to the Fund is Nicholas Company, Inc. (the "Adviser").

     In accordance with a Multiple Class Plan adopted pursuant to Rule 18f-3 under the 1940 Act the Fund currently offers two classes of shares for investors - Class I and Class N shares. Class I is the class of shares comprising the original Fund. Class I shares are generally available to institutions and individuals willing to make a significant initial investment and are not subject to any distribution fees. Class N shares are generally available to retail investors and institutions and assess a combined distribution fee and servicing fee of up to 0.35%. More information regarding the Rule 12b-1 Plan and Shareholder Servicing Plan can be found under the sub-heading "Distribution of Fund Shares."

     The investment objectives and investment strategies of the Fund described in this Statement of Additional Information ("SAI"), supplement the investment objectives and investment strategies disclosures included in the Fund's Prospectus under the caption “INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENT STRATEGIES, RELATED RISKS AND DISCLOSURE OF PORTFOLIO HOLDINGS." Set forth below is additional information on the other Fund investment strategies and permissible investments, and their associated risks, which the Fund may use in an effort to obtain its primary objectives.

     EQUITY SECURITIES - The equity securities that may be purchased by the Fund include common, preferred and convertible preferred stocks, and securities having equity characteristics such as rights, warrants and convertible debt securities. See "Convertible Securities." Common stocks and preferred stocks represent equity ownership interests in a corporation and participate in the corporation's earnings through dividends that may be declared by the corporation. Unlike common stocks, preferred stocks are entitled to stated dividends payable from the corporation's earnings, which in some cases may be "cumulative" if prior stated dividends have not been paid. Dividends payable on preferred stock have priority over distributions to holders of common stock, and preferred stocks generally have preferences on the distribution of assets in the event of the corporation's liquidation. Preferred stocks may be "participating," which means that they may be entitled to dividends in excess of the stated dividend in certain cases. The rights of common and preferred stocks are generally subordinate to rights associated with a corporation's debt securities.

     Convertible Securities - Convertible securities may be purchased by the Fund. These securities include convertible debt obligations and convertible preferred stock. A convertible security entitles the holder to exchange it for a fixed number of shares of common stock (or other equity security), usually at a fixed price within a specified period of time. Until conversion, the holder receives the interest paid on a convertible bond or the dividend preference of a preferred stock.

     Convertible securities have an "investment value" which is the theoretical value determined by the yield it provides in comparison with similar securities without the conversion feature. The investment value changes based upon prevailing interest rates and other factors. They also have a "conversion value" which is the worth in market value if the security were exchanged for the underlying equity security. Conversion value fluctuates directly with

the price of the underlying security. If conversion value is substantially below investment value, the price of the convertible security is governed principally by its investment value. If the conversion value is near or above investment value, the price of the convertible security generally will rise above investment value and may represent a premium over conversion value due to the combination of the convertible security's right to interest (or dividend preference) and the possibility of capital appreciation from the conversion feature. A convertible security's price, if influenced primarily by its conversion value, will generally yield less than a senior non-convertible security of comparable investment value. Convertible securities may be purchased at varying price levels above their investment values or conversion values. However, there is no assurance that any premium above investment value or conversion value will be recovered because prices change and, as a result, the ability to achieve capital appreciation through conversion may never be realized.

     Initial Public Offerings - The Fund also may invest in Initial Public Offerings ("IPOs") of equity securities. IPOs involve special risks because they are new issues and have not been previously publicly traded. Some of these risks include, but are not limited to, unseasoned trading, lack of investor knowledge of the company and limited operating history, all of which may contribute to price volatility.

     Other Investment Companies – The Fund may invest in shares of other investment companies including shares of closed-end investment companies, unit investments trusts, open-end investment companies and exchange-traded funds ("ETFs"). Investing in other investment companies involves substantially the same risks as investing directly in the underlying instruments, but may involve additional expenses. Certain types of investment companies, such as closed-end investment companies, issue a fixed number of shares that trade on a stock exchange or over-the-counter at a premium or discount to their net asset value. Others are continuously offered at their net asset value, but may also be traded in the secondary market. ETFs can be passively-managed funds that seek to achieve the same return as a particular market index (often called index funds), or can be actively-managed funds that buy or sell investments consistent with a stated investment objective.

     The Fund may invest in other investment companies to the extent permitted under the 1940 Act. As noted above, investments in other investment companies involve additional fees. The purchase and sale of securities of other investment companies may include brokerage commissions. The Fund may be limited in its ability to redeem its shares of other investment companies.

     Special Corporate Situation Investments - The Fund may invest in securities of companies that may be involved in special corporate situations, the occurrence of which would favorably affect the values of the companies' equity securities. Such situations could include, among other developments, the following: a change in management or management policies; the acquisition of a significant equity position in the company by an investor or investor group; a merger, reorganization or the sale of a division; the spin-off of a subsidiary, division, or other substantial assets; or a third-party or issuer tender offer. The primary risk of this type of investing is that if the contemplated transaction is abandoned, revised, delayed or becomes subject to unanticipated uncertainties, the market price of the securities may decline below the purchase price paid by the Fund.

     In general, securities that are the subject of a special corporate situation sell at a premium to their market prices immediately prior to the announcement of the situation. However, the increased market price of these securities sometimes reflects a discount from what the stated or appraised value of the security would be if the contemplated transaction were approved or consummated. These investments may be advantageous when the following occur: (1) the discount significantly overstates the risk of the contingencies involved; (2) the discount significantly undervalues the securities, assets or cash to be received by shareholders of the prospective portfolio company as a result of the contemplated transactions; or (3) the discount fails adequately to recognize the possibility that the offer or proposal may be replaced or superseded by an offer or proposal of greater value. The evaluation of these contingencies requires unusually broad knowledge and experience on the part of the Adviser, which must appraise not only the value of the issuer and its component businesses as well as the assets or securities to be received as a result of the contemplated transaction, but also the financial resources and business motivation of the offeror as well as the dynamics of the business climate when the offer or proposal is in progress.

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     The Fund's special corporate situation investments may tend to increase its turnover ratio, thereby increasing its brokerage and other transaction expenses. The Adviser attempts to select investments of the type described that, in its view, have a reasonable prospect of capital appreciation that is significant in relation to both the risk involved and the potential of available alternate investments.

     FIXED INCOME SECURITIES - The Fund may invest in bonds and other types of debt obligations of U.S. and foreign issuers. Fixed income securities purchased by the Fund may include, among others: bonds, notes and debentures issued by corporations; debt securities issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities ("U.S. Government Securities"); municipal securities; mortgage-backed and asset-backed securities; and debt securities issued or guaranteed by foreign governments, their agencies, instrumentalities or political subdivisions, or by government owned, controlled or sponsored entities, including central banks. The Fund has no restrictions regarding the rating or credit quality of the debt securities it may purchase or hold in its portfolio. Investors should recognize that, although securities ratings issued by S&P Global Ratings ("S&P") and Moody's Investors Service, Inc. ("Moody's") or any other nationally recognized statistical rating organization ("NRSRO's") provide a generally useful guide as to credit risks, they do not offer any criteria to evaluate interest rate risk. Changes in interest rate levels generally cause fluctuations in the prices of fixed income securities and will, therefore, cause fluctuations in the net asset value per share of the Fund. Subsequent to the purchase of a fixed income security by the Fund, the ratings or credit quality of such security may deteriorate. Subsequent adverse changes in the rating or quality of a security held by the Fund would not require the Fund to sell the security.

     Variable and Floating Rate Securities - Fixed income securities purchased by the Fund may include variable and floating rate securities. The interest rates payable on these securities are adjusted either at pre-designated periodic intervals or whenever there is a change in an established market rate of interest. Other features may include a right whereby the Fund may demand prepayment of the principal amount prior to the stated maturity (a "demand feature") and the right of an issuer to prepay the principal amount prior to maturity. One benefit of variable and floating rate securities is that, because of interest rate adjustments on the obligation, changes in market value that would normally result from fluctuations in prevailing interest rates are reduced. One benefit of a demand feature is enhanced liquidity.

     Non-Investment Grade Debt Securities - The Fund may invest in both investment grade and non-investment grade debt securities. Non-investment grade debt securities (typically called "junk bonds") are securities that are considered to be predominantly speculative with respect to the issuer's capacity to pay interest and repay principal.

     Companies that issue certain of these debt securities often are highly leveraged and may not have available to them more traditional methods of financing. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is the case with higher-grade securities. For example, during an economic downturn or a sustained period of rising interest rates, highly leveraged issuers of these securities may not have sufficient revenues to meet their interest payment obligations. The issuer's ability to service its debt obligations also may be affected adversely by specific corporate developments, forecasts or the unavailability of additional financing. The risk of loss because of default by the issuer is significantly greater for the holders of these securities because such securities generally are unsecured and often are subordinated to other creditors of the issuer.

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     Because there is no established retail secondary market for many of these debt securities, the Fund anticipates that such securities could be sold only to a limited number of dealers or institutional investors. To the extent a secondary trading market for these securities does exist, it generally is not as liquid as the secondary market for higher-grade securities. The lack of a liquid secondary market may have an adverse impact on market price and yield of the issue and the Fund's ability to dispose of particular issues when necessary to meet the Fund's liquidity needs or in response to a specific economic event such as deterioration in the creditworthiness of the issuer. The lack of a liquid secondary market for certain securities also may make it more difficult for the Fund to obtain accurate market quotations for purposes of valuing the Fund's portfolio and calculating its net asset value. Adverse publicity and investor perceptions, whether or not based on fundamental analysis, may decrease the values and liquidity of these securities. In such cases, judgment may play a greater role in valuation because less reliable, objective data may be available.

     These debt securities also may be particularly susceptible to economic downturns. It is likely that an economic recession could disrupt severely the market for such securities and may have an adverse impact on the value of such securities. In addition, it is likely that any such economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities.

     The Fund may acquire these securities during an initial offering. Such securities may involve special risks because they are new issues. The Fund has no arrangement with any person concerning the acquisition of such securities, and the Adviser will review the credit and other characteristics pertinent to such new issues.

     Zero Coupon Securities - Fixed income securities purchased by the Fund may include zero coupon securities. These securities do not pay any interest until maturity and, for this reason, zero coupon securities of longer maturities may trade at a deep discount from their face or par values and may be subject to greater fluctuations in market value than ordinary debt obligations of comparable maturity. Current federal tax law requires the holder of a zero coupon security to accrue a portion of the discount at which the security was purchased as income each year even though the holder receives no interest payment that year.

     FOREIGN SECURITIES - Although the Fund invests principally in equity securities of U.S. companies, it may invest in equity and fixed income securities of foreign issuers, including depository receipts (such as American Depository Receipts) that represent an indirect interest in securities of foreign issuers. Investments in foreign securities are affected by risk factors generally not thought to be present in the U.S. With respect to such securities, there may be more limited information publicly available concerning the issuer than would be the case with respect to domestic securities, different accounting standards may be used by foreign issuers and foreign trading markets may not be as liquid as U.S. markets. Foreign securities also involve such risks as currency risks, possible imposition of withholding or confiscatory taxes, possible currency transfer restrictions, expropriation or other adverse political or economic developments and the difficulty of enforcing obligations in other countries. These risks may be greater in emerging markets and in less developed countries.

     The purchase of securities denominated in foreign currencies will subject the value of the Fund's investments in those securities to fluctuations due to changes in foreign exchange rates. To hedge against the effects of changes in foreign exchange rates, the Fund may enter into foreign exchange contracts. These contracts represent agreements to exchange an amount of currency at an agreed upon future date and rate. The Fund will generally use foreign exchange contracts only to "lock in" the price in U.S. dollars of a foreign security that the Fund plans to purchase or to sell, but in certain limited cases may use such contracts to hedge against an anticipated substantial decline in the price of a foreign currency. Foreign exchange contracts may not be used in all cases and, in any event, cannot completely protect the Fund against all changes in the values of foreign securities resulting from fluctuations in foreign exchange rates.

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     CASH AND CASH EQUIVALENTS - Although the Fund's primary investment objective is growth, and the Fund intends to be primarily invested in common stocks, the Fund also may invest in cash, cash equivalents and repurchase agreements. Cash and cash equivalent securities will generally be retained by the Fund in an amount sufficient to provide moderate liquid reserves so that the Fund has sufficient cash to meet shareholder redemption requests and other operating expenses. In addition, if the Fund's Adviser believes the market conditions are unfavorable for profitable investing, or when the Adviser is otherwise unable to locate attractive investment opportunities, the Fund's position in cash or cash equivalent securities may increase. There is no limitation as to the percentage of Fund assets that may be invested in cash or cash equivalents. Certain circumstances, such as significant adverse market, economic, and political circumstances may arise in which the Fund takes a temporary defensive position. For defensive purposes, the Fund may temporarily invest all or a substantial portion of its assets in high quality fixed income securities and money market instruments, or may temporarily hold cash in such amounts as the Adviser deems appropriate.

     Money market instruments are high quality, short-term fixed income obligations (which generally have remaining maturities of one year or less), and may include: U.S. Government Securities; commercial paper; certificates of deposit and banker's acceptances issued by domestic branches of United States banks that are members of the Federal Deposit Insurance Corporation; and repurchase agreements for U.S. Government Securities. In lieu of purchasing money market instruments, the Fund may purchase shares of money market mutual funds that invest primarily in U.S. Government Securities and repurchase agreements involving those securities, subject to certain limitations imposed by the 1940 Act. The Fund, as an investor in a money market fund, will indirectly bear the fees and expenses of that fund, which will be in addition to the fees and expenses of the Fund.

     Repurchase Agreements - The Fund may enter into repurchase agreements involving the types of securities that are eligible for purchase by the Fund. However, there is no limitation upon the maturity of the securities underlying the repurchase agreements. Repurchase Agreements may be utilized by the Fund in lieu of purchasing money market instruments. Repurchase agreements, which may be viewed as a type of secured lending by the Fund, typically involve the acquisition by the Fund of debt securities issued or guaranteed by the U.S. Government or one of its agencies or instrumentalities (collectively, "U.S. Government Securities") or other securities from a selling financial institution such as a bank, savings and loan association or broker-dealer. The agreement provides that the Fund will sell back to the institution, and that the institution will repurchase, the underlying security ("collateral") at a specified price and at a fixed time in the future, usually not more than seven days from the date of purchase. The Fund will receive interest from the institution until the time when the repurchase is to occur. Although such date is deemed to be the maturity date of a repurchase agreement, the maturities of securities subject to repurchase agreements are not subject to any limits and may exceed one year.

     Repurchase agreements involve certain risks not associated with direct investments in debt securities. If the seller under a repurchase agreement becomes insolvent, the Fund's right to dispose of the securities may be restricted, or the value of the securities may decline before the Fund is able to dispose of them. In the event of the commencement of bankruptcy or insolvency proceedings with respect to the seller of the securities before the repurchase of the securities under a repurchase agreement is accomplished, the Fund may encounter delay and incur costs, including a decline in the value of the securities, before being able to sell the securities. If the seller defaults, the value of such securities may decline before the Fund is able to dispose of them. If the Fund enters into a repurchase agreement that is subject to foreign law and the other party defaults, the Fund may not enjoy protections comparable to those provided to certain repurchase agreements under U.S. bankruptcy law, and may suffer delays and losses in disposing of the collateral as a result.

     Reverse Repurchase Agreements – The Fund also may enter into reverse repurchase agreements. Under a reverse repurchase agreement, the Fund agrees to sell a security in its portfolio and then to repurchase a security at an agreed-upon price, date and interest payment. The Fund will maintain cash or high-grade liquid debt securities with a value equal or greater to the Fund's obligation under the agreement, including accrued interest, in a segregated account with the Fund's custodian. The securities subject to reverse repurchase agreements will be marked-to-market daily. Although reverse repurchase agreements are borrowings under the 1940 Act, the Fund does not treat these agreements as borrowings under its investment restriction so long as the segregated account is properly maintained.

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     SHORT SALES – The Fund may engage in short sale transactions when and to the extent deemed advisable by the Adviser. Short selling involves the sale of borrowed securities in anticipation that the market price of the security will decline. When the Fund makes a short sale, it must borrow the security sold short to make delivery to the buyer. The Fund then is obligated to replace the security borrowed by purchasing the security at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Fund. The Fund may have to pay a premium to borrow the security and may be obligated to pay the lender amounts equal to any dividends or interest that accrue during the period of the loan. If the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed security, the Fund will incur a loss. Conversely, if the price declines, the Fund will realize a gain. Any gain will be decreased, and any loss increased, by the premium and transaction costs described above. Although the Fund's gain is limited to the price at which it sold the security short, the potential loss is theoretically unlimited.

     While the short sale is outstanding, the Fund is required to collateralize its obligations, which has the practical effect of limiting the extent to which the Fund may engage in short sales. The proceeds of the short sale will be retained by the broker, to the extent necessary to meet its margin requirements, until the short position is closed out. In general, the Fund will also be required to pledge additional cash or liquid securities to the broker as collateral for its obligations, such that the cash held by the broker and the additional pledged cash and securities equals at least 150% of the current market value of the securities sold short. Until the Fund closes its short position, the Fund will be required to (a) maintain with its custodian a segregated account, which will be marked-to-market daily, containing cash or liquid securities (which may include equity securities) such that the amount deposited in the segregated account plus the amount deposited with the broker as collateral will equal the current market value of the security sold short or (b) otherwise cover the Fund's short position (known as a short sale "against-the-box"). The Fund may also cover its short position by owning the security sold short or by holding a call option on the security with a strike price no higher than the price at which the security was sold.

     The Fund may make a short sale in order to hedge against market risks when it believes that the price of a security owned by the Fund may decline or when the Fund does not want to sell the security it owns. The Fund will incur transaction costs, including interest expense, in connection with opening, maintaining and closing short sales.

     WHEN-ISSUED AND DELAYED DELIVERY SECURITIES - The Fund may purchase or sell securities on a when-issued or delayed delivery basis subject to applicable limits under the 1940 Act. In these transactions, securities are purchased or sold by the Fund with payment and delivery taking place as much as 35 days or less in the future. The Fund engages in these transactions to secure an advantageous price or yield at the time of entering into the transactions. However, the value of securities purchased on a when-issued or delayed delivery basis is subject to market fluctuation such that a loss may occur if the value of the security to be purchased declines prior to the settlement date, or if the value of the security to be sold increases prior to the settlement date. No dividends or interest accrues to the purchaser during the period before the settlement date.

     ILLIQUID SECURITIES - The Fund may invest up to 15% of the value of its net assets in illiquid securities. Illiquid securities are those securities that the Fund cannot sell or dispose of in the ordinary course of business within seven days at approximately the value at which the Fund carries the securities. These securities include restricted securities and repurchase agreements maturing in more than seven days. Restricted securities are securities that may not be sold to the public without an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), and thus, may be sold only in privately negotiated transactions or pursuant to an exemption from registration. Subject to the adoption of guidelines by the Board of Directors of the Fund, certain restricted securities that may be sold to institutional investors pursuant to Rule 144A under the 1933 Act and non-exempt commercial paper may be determined to be liquid by the Adviser. Illiquid securities involve the risk that the securities will not be able to be sold at the time desired by the Adviser or at prices approximating the value at which the Fund is carrying the securities.

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     LENDING PORTFOLIO SECURITIES - The Fund may lend its portfolio securities to brokers, dealers and financial institutions as permitted under the 1940 Act. Currently the 1940 Act requires that the value of the loaned securities may not exceed one-third of the Fund's total net assets and loans of the portfolio securities must be fully collateralized based on the values that are marked-to-market daily. These loans will be secured by collateral (consisting of cash, U.S. Government Securities or irrevocable letters of credit) maintained in an amount equal to at least 100% of the market value, determined daily, of the loaned securities. The Fund may, subject to certain notice requirements, at any time call the loan and obtain the return of the securities loaned. The Fund will be entitled to payments equal to the interest and dividends on the loaned securities and may receive a premium for lending the securities. The advantage of such loans is that the Fund continues to receive the income on the loaned securities while at the same time earning interest on the cash amounts deposited as collateral, which will be invested in short-term investments.

     A loan may be terminated by the borrower on one business days’ notice, or by the Fund on four business days' notice. If the borrower fails to deliver the loaned securities within four days after receipt of notice, the Fund could use the collateral to replace the securities while holding the borrower liable for any excess of replacement cost exceeding the collateral. As with any extensions of credit, there are risks of delay in recovery and in some cases even loss of rights in the collateral should the borrower of the securities fail financially. In addition, securities lending involves a form of leverage, and the Fund may incur a loss if securities purchased with the collateral from securities loans decline in value or if the income earned does not cover the Funds transactions costs. However, loans of securities will only be made to firms deemed by the Board of Directors to be creditworthy (such creditworthiness will be monitored on an ongoing basis) and when the income which can be earned from such loans justifies the attendant risks. Upon termination of the loan, the borrower is required to return the securities. Any gain or loss in the market price during the loan period would inure to the Fund.

     BORROWING - The Fund may borrow money for temporary or emergency purposes, including meeting redemption requests, and for investment purposes, as permitted by the 1940 Act, and subject to the investment restrictions discussion herein. See "INVESTMENT RESTRICTIONS." Borrowing involves special risk considerations. Interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the return earned on borrowed funds (or on the assets that were retained rather than sold to meet the needs for which the monies were borrowed). Under adverse market conditions, the Fund may have to sell portfolio securities to meet interest or principal payments at a time when investment considerations would not favor such sales.

     FUTURE DEVELOPMENTS – The Fund may take advantage of opportunities in the area of options, futures, options on futures and any other derivative instruments that are not presently contemplated for use by the Fund or that are not currently available, but which may be developed, to the extent such opportunities are consistent with the Fund's investment goals, upon establishment of appropriate internal policies and procedures and are legally permissible for the Fund.

     Except as otherwise may be stated, all percentage limitations on the Fund's investment practices apply at the time of an investment or a transaction. Accordingly, except with respect to borrowing and restrictions on illiquid securities, a later change in the value of the investment or total value of the Fund's assets will not constitute a violation of such restriction.

     The Fund has adopted the following restrictions, which are matters of fundamental policy and cannot be changed without the approval of the holders of a majority of its outstanding shares, or, if less, 67% of the shares represented at a meeting of shareholders at which 50% or more of the holders are represented in person or by proxy.